The Primary Obstacle to a Major Deal on the Budget

Prospects for a major budget deal in 2011 are small. There are many reasons and plenty of blame to spread around — including on the administration and congressional Democrats.

But one reason to highlight is the “no new taxes” pledge, which has been signed by almost every congressional Republican — 235 out of 241 in the House and 41 out of 47 in the Senate — including the House speaker, the Senate minority leader, and the leading Republicans on the two budget committees, House Ways and Means and Senate Finance. This, despite the fact that Republicans have repeatedly voted for increases in spending throughout the last decade, including the biggest deficit-financed entitlement in the last 45 years, the Medicare prescription drug benefit, enacted in 2003.

Virtually every serious student of the budget understands that a major budget deal will require both tax increases and spending cuts. Budget discipline works only when it is imposed on both sides of the ledger. In the 1983 Social Security reforms and the 1990 and 1993 budget deals, Congress did just that, slashing spending and raising taxes.

In contrast, in 1981 and 2001, massive tax cuts did not lead to reduced spending, despite the hopes of those who espouse the “starve the beast” theory of fiscal reform. Instead, the tax cuts were followed by big increases in spending, thus boosting the deficit from both sides. The logic is clear: If some politicians refuse to ask their constituents to contribute to solving the fiscal problem through higher taxes, other politicians will see no reason to ask their constituents endure lower benefits.